Restricting oil imports a dangerous proposal for U.S.

Jun 23, 2016

The price of oil impacts New Mexico’s economy in a big way. Oil prices that once hovered at $110 per barrel dropped as low as $27 earlier this year, and now hover around $50. That’s lower than we’ve grown accustomed to, but it is hardly a crisis – and certainly doesn’t appear to be an early-1980s-style bust.

Lower prices have hurt New Mexico producers, but consumers nationwide have benefited from lower prices at the pump.

Unfortunately, at a time of increased skepticism of free trade, a small group of oil and gas producers here in New Mexico is calling for government-enforced limits on oil imports. A forum calling for quotas was held on June 14 in Farmington at the San Juan College School of Energy. Several leaders in the industry, including Daniel Fine, associate director of the New Mexico Center for Energy Policy at New Mexico Institute of Mining and Technology, are supportive.

But restricting oil imports is a very dangerous proposal for many reasons, both economic and political.

It is worth noting that the cause of falling oil and gas prices is the result of supply and demand forces. The boom in fracking led to massive growth in domestic production, which ultimately drove prices down. However, fracking is only profitable at $65-$70 a barrel, so prices lower than that are a challenge for many New Mexico producers. That’s the free market at work.

Despite hostility toward trade from the likes of Donald Trump, Hillary Clinton, and Bernie Sanders, the free exchange of goods and services benefits us all. This is true whether you are “trading” a few dollars for a latte at your corner coffee shop or whether oil is being imported (or exported) to where it can be sold for the most money.

We’ve just been through this battle, on the issue of the federal government’s crude-export ban, which Congress repealed earlier this year. The policy was instituted in the 1970s in the wake of government-induced shortages caused by price controls. Back then, elected officials simply couldn’t foresee a future in which the U.S. had ample enough supplies to export crude oil.

Quotas today would be a similarly shortsighted policy. An industry that so often faces government regulation – and opposition to its very existence – is setting itself up for future problems by running to the political class for protection from market forces.

In a Clinton presidency, there is little chance of quotas. Trump, who is unfamiliar with the oil-and-gas industry and is skeptical of free trade, might be sympathetic. He might also target oil-producing Middle Eastern countries and Mexico. But a system of quotas will do so at the expense of the American economy and some of our greatest allies.

According to the Energy Information Administration, the U.S. gets 40 percent of our imported oil from Canada. Politically troubled Venezuela is responsible for another 9 percent, and just 16 percent of imported oil comes from the entire Persian Gulf including Saudi Arabia. Another 8 percent comes from Mexico.

Canada is our largest trading partner and Mexico is 3rd (China is 2nd). Trade goes both ways. If the federal government imposes tariffs or quotas on imports, the impacted country is sure to do the same. This will hurt American exporters directly. But, should the quotas be “successful” in raising the price of oil, it will hurt domestic consumers at the pump as well. The industries that consume oil and natural gas (think trucking and airlines, for starters) will also suffer, and their customers will face higher costs.

The oil patch is experiencing a painful adjustment. But government protectionism is not the solution. Such policies will harm the economy and our ability to lead on global trade issues. The downturn in oil and gas is just another reason for New Mexico’s leaders to reform the state’s long-struggling economy. Turning, yet again, to Washington is not the solution.

Paul Gessing is the President of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

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